SUNRISE, Fla., Nov. 06, 2018 (GLOBE NEWSWIRE) -- FedNat Holding Company (the “Company”) (Nasdaq: FNHC) today reported results for the three and nine months ended September 30, 2018.

Q3 2018 highlights (as measured against the same three-month period last year, except where noted):

Mr. Michael H. Braun, the Company’s Chief Executive Officer, said regarding the quarter’s results, “We continue to make progress in executing on our long-term growth objectives in a challenging market for Florida homeowners' insurers. Earnings were impacted by net retained losses due to Hurricane Florence and Tropical Storm Gordon and the continued wind-down of our non-core automobile and commercial general liability lines of business which we are exiting.  We also took action to strengthen our reserves in our core Homeowners line, in response to elevated fire and lightning claims in recent months. Net income was $8.0 million, or $0.62 cents, in the third quarter compared to last year’s quarterly loss from Hurricane Irma.  Revenue increased 18% over last year’s comparable quarter.  We improved non-catastrophe underwriting profitability and substantially improved our combined ratio from the prior year quarter. We continue to expand our non-Florida homeowners' business as gross premiums earned increased 54%.  I would like to acknowledge and thank our entire team though specifically our claims staff for providing excellent service to our policyholders in the aftermath of Hurricane Michael, which was truly catastrophic in nature.”

Mr. Braun added, “We are in a good position to deliver an improved performance in 2019 and beyond. Our new reinsurance program provides strong protection and has already helped reduce our costs and mitigate risk. Our plan is to continue to execute on our strategic priorities to grow market share in our core Homeowners business, increase our presence in nearby coastal states, while continuing to manage our risk.  These strategic initiatives combined with our underwriting expertise set the stage for a strong 2019.”

Consolidated

Revenues

Expenses

Line of Business Results

Subsequent Events

Conference Call Information

The Company will hold an investor conference call at 9:00 AM (ET) Wednesday, November 7, 2018. The Company’s CEO, Michael Braun and its CFO, Ronald Jordan will discuss the financial results and review the outlook for the Company. Messrs. Braun and Jordan invite interested parties to participate in the conference call.

Listeners interested in participating in the Q&A session may access the conference call as follows:

Toll-Free Dial-in:  (877) 303-6913

Conference ID: 2775258

A live webcast of the call will be available online via the “Conference Calls” section of the Company’s website at FedNat.com or interested parties can click on the following link:

http://www.fednat.com/investors/conference-calls/

Please call at least five minutes in advance to ensure that you are connected prior to the presentation.  A webcast replay of the conference call will be available shortly after the live webcast is completed and may be accessed via the Company’s website.

About the Company

The Company is an insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents. The Company, through our wholly owned subsidiaries, are authorized to underwrite, and/or place homeowners multi-peril, federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.

The Company’s supplemental line of business information is designed to afford users greater transparency into our results.  The “Homeowners” line of business consists of our homeowners and fire property and casualty insurance business, which currently operates in Florida, Alabama, Texas, Louisiana and South Carolina. The “Automobile” line of business consists of our nonstandard personal automobile insurance business which currently operates in Georgia, Texas, Alabama, and Florida, pending our withdrawal. The “Other” line of business primarily consists of our commercial general liability (pending our withdrawal) and federal flood businesses, along with corporate and investment operations.

Forward-Looking Statements /Safe Harbor Statements

Safe harbor statement under the Private Securities Litigation Reform Act of 1995:

Statements that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative or other variations thereof, and similar words or phrases or comparable terminology, are intended to identify forward-looking statements.

Forward-looking statements might also include, but are not limited to, one or more of the following:

The risks and uncertainties include, without limitation, risks and uncertainties related to estimates, assumptions and projections generally; the nature of the Company’s business; the adequacy of its reserves for losses and loss adjustment expense; claims experience; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail) and other catastrophic losses; reinsurance costs and the ability of reinsurers to indemnify the Company; raising additional capital and our compliance with minimum capital and surplus requirements; potential assessments that support property and casualty insurance pools and associations; the effectiveness of internal financial controls; the effectiveness of our underwriting, pricing and related loss limitation methods; changes in loss trends, including as a result of insureds’ assignment of benefits; court decisions and trends in litigation; our potential failure to pay claims accurately; ability to obtain regulatory approval applications for requested rate increases, or to underwrite in additional jurisdictions, and the timing thereof; the impact that the results of our subsidiaries’ operations may have on our results of operations; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; legislative and regulatory developments; the outcome of litigation pending against the Company, and any settlement thereof; dependence on investment income and the composition of the Company’s investment portfolio; insurance agents; ratings by industry services; the reliability and security of our information technology systems; reliance on key personnel; acts of war and terrorist activities; and other matters described from time to time by the Company in releases and publications, and in periodic reports and other documents filed with the United States Securities and Exchange Commission.

In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including claims and litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a contingency. Reported results may therefore appear to be volatile in certain accounting periods.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.  We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Contacts

Michael H. Braun, CEO (954) 308-1322,
Ronald Jordan, CFO (954) 308-1363,
or Erick A. Fernandez (954) 308-1341


 
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
     
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2018 2017 2018 2017
Revenues:        
Net premiums earned $98,493  $80,764  $264,159  $245,978 
Net investment income 3,137  2,603  9,058  7,481 
Net realized and unrealized investment gains (losses) 1,760  6,101  916  8,644 
Direct written policy fees 3,796  4,098  10,685  13,617 
Other income 3,646  5,131  14,833  14,190 
Total revenues 110,832  98,697  299,651  289,910 
        
Costs and expenses:        
Losses and loss adjustment expenses 62,457  75,367  156,098  188,683 
Commissions and other underwriting expenses 31,373  28,386  91,467  86,883 
General and administrative expenses 5,000  5,042  16,345  14,737 
Interest expense 1,032  81  3,139  247 
Total costs and expenses 99,862  108,876  267,049  290,550 
        
Income (loss) before income taxes 10,970  (10,179) 32,602  (640)
Income tax expense (benefit) 3,020  (3,781) 8,587  (358)
Net income (loss) 7,950  (6,398) 24,015  (282)
Net income (loss) attributable to non-controlling interest —  (1,674) (218) (1,975)
Net income (loss) attributable to FedNat Holding Company shareholders $7,950  $(4,724) $24,233  $1,693 
        
Net Income (Loss) Per Common Share        
Basic $0.62  $(0.36) $1.90  $0.13 
Diluted $0.62  $(0.36) $1.88  $0.13 
        
Weighted Average Number of Shares of Common Stock Outstanding        
Basic 12,749  13,135  12,775  13,211 
Diluted 12,870  13,135  12,866  13,302 
        
Dividends Declared Per Common Share $—  $0.08  $0.16  $0.24 
                 


 
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics
(Unaudited)
     
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Gross premiums written:        
Homeowners Florida $114,441  $126,211  $355,818  $373,875 
Homeowners non-Florida 22,062  15,198  59,096  40,381 
Automobile (3,041) 7,176  8,628  37,089 
Commercial general liability 1,435  2,546  5,519  8,768 
Federal flood 4,125  3,651  11,090  9,412 
Total gross premiums written $139,022  $154,782  $440,151  $469,525 


 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Gross premiums earned:        
Homeowners Florida $118,603  $121,771  $356,507  $359,147 
Homeowners non-Florida 17,984  11,734  47,072  31,064 
Automobile 2,766  13,525  17,876  43,932 
Commercial general liability 2,122  3,005  7,144  9,339 
Federal flood 3,432  2,744  9,640  7,838 
Total gross premiums earned $144,907  $152,779  $438,239  $451,320 


 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Net premiums earned:        
Homeowners $95,805  $72,266  $252,857  $217,820 
Automobile 675  5,648  4,526  19,303 
Commercial general liability 2,013  2,850  6,776  8,855 
Total net premiums earned $98,493  $80,764  $264,159  $245,978 
                 


     
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics (continued)
(Unaudited)
     
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Commissions and other underwriting expenses:        
Homeowners Florida $14,258  $14,707  $42,796  $43,171 
All others 4,866  5,853  14,488  17,150 
Ceding commissions (689) (5,457) (8,777) (14,511)
Total commissions 18,435  15,103  48,507  45,810 
         
Automobile 1,466  1,742  4,229  6,653 
Homeowners non-Florida 571  371  1,354  983 
Total fees 2,037  2,113  5,583  7,636 
         
Salaries and wages 3,147  3,958  11,282  11,361 
Other underwriting expenses 7,754  7,212  26,095  22,076 
Total commissions and other underwriting expenses $31,373  $28,386  $91,467  $86,883 


 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
         
Net loss ratio 63.4% 93.3% 59.1% 76.7%
Net expense ratio 36.9% 41.4% 40.8% 41.3%
Combined ratio 100.3% 134.7% 99.9% 118.0%
Gross loss ratio 50.1% 254.4% 108.5% 118.7%
Gross expense ratio 25.6% 25.5% 26.6% 25.7%
Book value per share excluding non-controlling interest $17.45  $15.93  $17.45  $15.93 
                 


     
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
     
 September 30, December 31,
 2018 2017
ASSETS (In thousands)
Investments:    
Debt securities, available-for-sale, at fair value $424,148  $423,238 
Debt securities, held-to-maturity, at amortized cost 5,255  5,349 
Equity securities, at fair value 19,535  15,434 
Total investments 448,938  444,021 
Cash and cash equivalents 69,457  86,228 
Prepaid reinsurance premiums 134,285  135,492 
Premiums receivable, net of allowance 34,286  46,393 
Reinsurance recoverable, net 134,736  124,601 
Deferred acquisition costs, net 47,395  40,893 
Income taxes, net 3,006  9,817 
Property and equipment, net 4,120  4,025 
Other assets 14,388  13,403 
Total assets $890,611  $904,873 
    
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Liabilities    
Loss and loss adjustment expense reserves $221,114  $230,515 
Unearned premiums 296,329  294,423 
Reinsurance payable 77,004  71,944 
Long-term debt, net of deferred financing costs 44,377  49,251 
Deferred revenue 4,913  6,222 
Other liabilities 23,938  25,059 
Total liabilities 667,675  677,414 
Shareholders' Equity    
Preferred stock, $0.01 par value: 1,000,000 shares authorized —  — 
Common stock, $0.01 par value: 25,000,000 shares authorized; 12,774,444 and 12,988,247 shares issued and outstanding, respectively 128  130 
Additional paid-in capital 140,608  139,728 
Accumulated other comprehensive income (loss) (5,901) 1,770 
Retained earnings 88,101  70,009 
Total shareholders’ equity attributable to FedNat Holding Company shareholders 222,936  211,637 
Non-controlling interest —  15,822 
Total shareholders’ equity 222,936  227,459 
Total liabilities and shareholders' equity $890,611  $904,873 
         


  
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business
(Unaudited)
  
Three Months Ended September 30,
2018 2017
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
(Dollars in thousands)
Revenues:               
Gross premiums written$136,503  $(3,041) $5,560  $139,022  $141,409  $7,176  $6,197  $154,782 
Gross premiums earned136,587  2,766  5,554  144,907  133,505  13,525  5,749  152,779 
Ceded premiums(40,782) (2,091) (3,541) (46,414) (61,239) (7,877) (2,899) (72,015)
Net premiums earned95,805  675  2,013  98,493  72,266  5,648  2,850  80,764 
Net investment income—  —  3,137  3,137  —  —  2,603  2,603 
Net realized and unrealized investment gains (losses)—  —  1,760  1,760  —  —  6,101  6,101 
Direct written policy fees2,198  1,466  132  3,796  2,204  1,742  152  4,098 
Other income2,613  191  842  3,646  3,183  752  1,196  5,131 
Total revenues100,616  2,332  7,884  110,832  77,653  8,142  12,902  98,697 
                
Costs and expenses:               
Losses and loss adjustment expenses56,856  2,609  2,992  62,457  65,600  7,013  2,754  75,367 
Commissions and other underwriting expenses28,647  1,545  1,181  31,373  24,184  2,978  1,224  28,386 
General and administrative expenses4,187  75  738  5,000  3,915  150  977  5,042 
Interest expense—  —  1,032  1,032  81  —  —  81 
Total costs and expenses89,690  4,229  5,943  99,862  93,780  10,141  4,955  108,876 
                
Income (loss) before income taxes10,926  (1,897) 1,941  10,970  (16,127) (1,999) 7,947  (10,179)
Income tax expense (benefit)2,768  (481) 733  3,020  (6,221) (771) 3,211  (3,781)
Net income (loss)8,158  (1,416) 1,208  7,950  (9,906) (1,228) 4,736  (6,398)
Net income (loss) attributable to non-controlling interest—  —  —  —  (1,674) —  —  (1,674)
Net income (loss) attributable to FNHC shareholders$8,158  $(1,416) $1,208  $7,950  $(8,232) $(1,228) $4,736  $(4,724)
                
Ratios to net premiums earned:               
Net loss ratio59.3% 386.5% 148.6% 63.4% 90.8% 124.2% 96.6% 93.3%
Net expense ratio34.3%     36.9% 38.9%     41.4%
Combined ratio93.6%     100.3% 129.7%     134.7%
                    


  
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business
(Unaudited)
  
Nine Months Ended September 30,
2018 2017
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
(Dollars in thousands)
Revenues:               
Gross premiums written$414,914  $8,628  $16,609  $440,151  $414,256  $37,089  $18,180  $469,525 
Gross premiums earned403,579  17,876  16,784  438,239  390,211  43,932  17,177  451,320 
Ceded premiums(150,722) (13,350) (10,008) (174,080) (172,391) (24,629) (8,322) (205,342)
Net premiums earned252,857  4,526  6,776  264,159  217,820  19,303  8,855  245,978 
Net investment income—  —  9,058  9,058  —  —  7,481  7,481 
Net realized and unrealized investment gains (losses)—  —  916  916  —  —  8,644  8,644 
Direct written policy fees5,978  4,229  478  10,685  6,501  6,652  464  13,617 
Other income10,560  1,084  3,189  14,833  8,705  2,661  2,824  14,190 
Total revenues269,395  9,839  20,417  299,651  233,026  28,616  28,268  289,910 
                
Costs and expenses:               
Losses and loss adjustment expenses141,428  6,777  7,893  156,098  159,497  25,119  4,067  188,683 
Commissions and other underwriting expenses83,284  5,021  3,162  91,467  72,073  11,091  3,719  86,883 
General and administrative expenses13,361  275  2,709  16,345  11,288  500  2,949  14,737 
Interest expense100  —  3,039  3,139  247  —  —  247 
Total costs and expenses238,173  12,073  16,803  267,049  243,105  36,710  10,735  290,550 
                
Income (loss) before income taxes31,222  (2,234) 3,614  32,602  (10,079) (8,094) 17,533  (640)
Income tax expense (benefit)7,911  (566) 1,242  8,587  (3,886) (3,123) 6,651  (358)
Net income (loss)23,311  (1,668) 2,372  24,015  (6,193) (4,971) 10,882  (282)
Net income (loss) attributable to non-controlling interest(218) —  —  (218) (1,975) —  —  (1,975)
Net income (loss) attributable to FNHC shareholders$23,529  $(1,668) $2,372  $24,233  $(4,218) $(4,971) $10,882  $1,693 
                
Ratios to net premiums earned:               
Net loss ratio55.9% 149.7% 116.5% 59.1% 73.2% 130.1% 45.9% 76.7%
Net expense ratio38.3%     40.8% 38.3%     41.3%
Combined ratio94.2%     99.9% 111.5%     118.0%